The document discusses conflicts between neoliberal ideology and functional markets. It argues that neoliberalism's premise that markets are perfect and self-correcting is flawed, as markets require framing, monitoring, and regulation to function properly. Markets face problems with uncertainty, and neoliberalism provides no means to address market failures or revise failing markets. The financial crisis demonstrates that neoliberal ideology failed to prevent systemic problems and contradicts how real-world markets operate.

1. AN OVERVIEW OF
CONFLICTS BETWEEN “NEOLIBERAL” IDEOLOGY AND
FUNCTIONAL MARKETS
Kenneth R. Zimmerman, Ph.D.
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Sciences Po
Paris, France
July 16-18, 2009

2. 
Guesnerie identifies a market as a co-ordination
device in which:
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the agents pursue their own interests and to this end
perform economic calculations which can be seen as an
operation of optimization and/or maximization;
the agents' generally have divergent interests, which leads
them to engage in
transactions which resolve the conflict by defining a price.
“… a market opposes buyers and sellers, and the
prices which resolve this conflict are the input but
also, in a sense, the outcome of the agents' economic
calculation" (1996, p.18).
A market requires calculative actors to function and
these actors require a market. These actors are both
human and nonhuman.
Along with humans these actors include ideas and
ideologies, as well as texts, tools, formulae, physical
devices, physical structures, etc.
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In order to conclude the transaction by agreeing
on a price and enter and depart as strangers
actors in a market must at least be able to, says
Callon,
 establish
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Thus, if market coordination is to succeed, agents
must not only calculate but also must have
information on all the possible states of the
world, on the nature of the actions which can be
undertaken and on the consequences of these
different actions, once they have been
undertaken.
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a list of the possible states of the world;
 rank these states of the world (which gives a content
and an object to the agent's preferences);
 identify and describe the actions which allow for the
production of each of the possible states of the world.
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4. Market coordination encounters problems when
uncertainties on the states of the world, on the
nature of the actions which can be undertaken
and on the expected consequences of these
actions, increase.
 Problems are at their worst when the
uncertainties leave room only for pure and
simple ignorance. Such situations are the rule
and not the exception.
 This is even more obvious with the uncertainties
generated by technoscience.
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Market operations and coordination also become
problematic when the commodities for which a price is
sought are uncertain, or randomly change in form or scope.
Similarly, problems occur when involved actors cannot be
easily identified and communications between actors is
unclear or overly complex.
Finally, market problems occur when a market, any
market, is portrayed as superior to other sociotechnical
agencements operating on other fundamental premises and
with difference tools, texts, physical objects, ideologies, etc.
that co-exist with markets.
In this vein of superiority markets are often identified as
the “perfect” set of arrangements that cannot fail. They
correct their own errors, and provide a level and type of
information and organization unattainable from any other
source. This picture of markets is just wrong.
The general question is thus the following: how can agents
calculate when no stable information on the future exists?
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My contentions are: neo-liberal economics at
least impedes functional markets; often destroys
functioning markets; no successful market can be
constructed based on neo-liberal economics. The
evidence for these statements is presented below.
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7. Number 1
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Calculative action is difficult to create and not the norm at all. Noncalculative action is the more prevalent and usual. This means the
creation and continuation of markets is difficult.
As a result the fundamental premise of neo-liberal economics and
economies is tenuous, at best. Neo-liberalism’s fundamental premise is
that all else must be subservient to absolutely free and unfettered
markets.
Callon asserts that markets are able to survive due to framing. Markets
survive not as a result of adding connections (contracts, rules, trust,
culture) to explain and guide market actions, but rather by removing
(bracketing) connections so that all that is left is a buyer, a seller, and an
easily identified commodity. Only this framing allows calculation and the
coordinated calculative actions of a market to take place.
But framing is difficult, incomplete, temporary, and always under threat
from the wider actor-networks. In other words there is always a danger of
the aspects of the calculation becoming entangled and thus losing the
clarity and predictability achieved via framing.
It is here we see the first conflict between neo-liberal economics and
functional markets. Framing is inconsistent with neo-liberalism’s central
premise. All markets require detailed and continuous work (framing)
from all the actors involved with the construction of a market (both those
outside and those inside the market) to maintain the conditions necessary
for calculative action. Absolutely free and unfettered markets to which all
other actions are subservient are a practical contradiction. If this is the
goal to which neo-liberal economics and economists are committed, above
all, then no market can or will ever exist, and certainly no functional
market can or will ever exist.
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8. Number 2
A danger constantly facing market participants is that market
actions will change from calculative to non-calculative.
Market “monitoring” and “regulation” by actors outside the
market can protect markets and market participants from this
loss of calculative action. Once such a change is noted these
market monitors can develop and implement changes to the
market rules and participants to reverse the change and return
calculative action to the market.
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But such necessary corrections of markets are not possible so
long as neo-liberal economic guidelines are dominant. These
guidelines assert that markets need no regulation or outside
monitoring because they are self correcting. In fact these
guidelines assert that “correct” market actions are actually
harmed by such regulation and monitoring.
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Markets in actual economies around the world, even in the US,
and those based on neo-liberal principles seem to contradict these
guidelines and demonstrate the need for market monitoring and
regulation. In fact, these actual markets clearly show that
markets can remain markets only when such monitoring and
regulation is detailed, strong, and constant.
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9. NUMBER 3
Market monitoring and regulation also is essential for another
reason. Markets as networks for calculative action provide no
device for assessing how they affect and are affected by other
agencements. This is particularly the case in markets
constructed based on neo-liberal principles. Obviously markets
are not disconnected from other agencements.
This is certainly the case with the current world economic crisis,
in which negotiations in financial markets, some thousands of
miles away, has stressed actors from small businesses to national
governments.
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Even if neo-liberalism’s contention that financial markets correct
themselves is partially correct, the real questions are how long
will such corrections take and how much collateral damage will be
done prior to the self correction? If the financial markets do not
self-correct, the questions are what corrections are needed and
how are they to be carried out? Marketing monitoring and
regulation is the only viable answer to both sets of questions.
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10. NUMBER 4
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Neo-liberal notions of a market create disadvantages for all efforts to
organize markets.
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First, neo-liberalism approaches markets as natural events, formed
without substantial work or framing, and with little need for political
actions to overcome rivals.
Second, neo-liberalism assumes that in all situations markets are at the
apex of the relationships between actors. That is, when left unfettered
and unregulated, actors will naturally create and interact in a market
fashion and markets will always dominate other types of interaction.
Such is not the case, however. As demonstrated by autocratic
governments throughout history, markets are easily overcome and even
perverted to serve political ends that are not calculative. An example
today is China. China has created so called “market communism” as a
means to further the world influence of China and prevent a democratic
form of government being developed.
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Market framing is always in a contest for survival, not only with
unanticipated events and actors, the limitations of the framing itself, but
also with other agencements. In addition to the framing for the
calculative action needed for markets, framing also occurs for the forms of
action necessary for political, religious, technological, scientific, and other
agencements. These criss cross and compete with one another for building
materials and converts. The winners in these rivalries cannot be
predicted.
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11. NUMBER 5
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Very little.
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For neo-liberals markets are natural, they just occur, and
their form and operations are solely dictated by the actors
involved and the transactions between them.
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And indeed this may actually be successful, for a time. But if
the actors do not change and the transactions between them
do not change, but still the market is failing, creating large
opposition to it, or is creating results never intended by the
actors and transactions, what is to be done? Working on these
questions requires the kind of fundamental re-design and reauthorization of a market that neo-liberalism is simply
incapable of offering.
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Because of the extreme difficulty of framing and the strong
likelihood that it is incomplete and temporary, and will
eventually fail, market construction is itself necessarily
incomplete, temporary, and fragile. What does neo-liberalism
say about patching markets, or revising them for changed
times, or totally rebuilding a market(s) when it fails?
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12. NUMBER 6
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Writing in the New York Times, Paul Krugman states,
But the wizards were frauds, whether they knew it or not, and
their magic turned out to be no more than a collection of cheap
stage tricks. Above all, the key promise of securitization —
that it would make the financial system more robust by
spreading risk more widely — turned out to be a lie. Banks
used securitization to increase their risk, not reduce it, and in
the process they made the economy more, not less, vulnerable
to financial disruption. Sooner or later, things were bound to
go wrong, and eventually they did. Bear Stearns failed;
Lehman failed; but most of all, securitization failed. (March
27, 2009)
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In the context of the current crisis in financial markets many
scholars and journalists have specifically pointed to neoliberalism’s antagonistic position toward retaining properly
designed and functional markets as a primary cause. Of
particular note is that these scholars and journalists “pull few
punches” in the placement of most of the blame for the current
crisis on this lack of concern and action by neo-liberalism.
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13. Harold Meyerson writes in the Washington Post that,
So what kind of capitalism shall we craft? Now that the market
fundamentalism to which we've adhered for the past 30 years has -- by its
own criterion of increasing shareholder value -- totally failed? Now that
Alan Greenspan has proclaimed himself "shocked" that "the self-interest
of lending institutions to protect shareholders' equity" proved to be an
illusion? But no one is suggesting an entirely new system. What we need
-- and what we can build -- is a capitalism more attuned to our national
concerns. The Reagan-Thatcher model, which favored finance over
domestic manufacturing, has collapsed.
Manufacturing has become too global to permit the United States to revert to
the level of manufacturing it had in the good old days of Keynes and Ike,
but it would be a positive development if we had a capitalism that once
again focused on making things rather than deals. [Up to a point German
economic arrangements could be a model for the US.] The focus on longterm performance over short-term gain is reinforced by Germany's
stakeholder, rather than shareholder, model of capitalism: Worker
representatives sit on boards of directors, unionization remains high,
income distribution is more equitable, social benefits are generous.
Making such changes here would require laws easing unionization (such as
the Employee Free Choice Act, which was introduced this week in
Congress) and policies that professionalize jobs in child care, elder care
and private security. To be sure, this form of capitalism requires a larger
public sector than we have had in recent years. But investing in more
highly trained and paid teachers, nurses and child-care workers is more
likely to produce sustained prosperity than investing in the asset bubbles
to which Wall Street was so fatally attracted. (March 12, 2009)
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14. A recent paper from the Swedish School of Economics and
Business Administration, entitled The Financial Crisis and the
Systemic Failure of Academic Economics places the blame for the
financial market crisis squarely at the feet of academic economics.
And since neo-liberalism has dominated academic economics for
the last 40 years, the paper is placing the blame on neo-liberal
economics. The abstract for that paper makes its case in the
following way,
The economics profession appears to have been unaware of the long
build-up to the current worldwide financial crisis and to have
significantly underestimated its dimensions once it started to
unfold. In our view, this lack of understanding is due to a
misallocation of research efforts in economics. We trace the
deeper roots of this failure to the profession’s focus on models
that, by design, disregard key elements driving outcomes in realworld markets. The economics profession has failed in
communicating the limitations, weaknesses, and even dangers of
its preferred models to the public. This state of affairs makes
clear the need for a major reorientation of focus in the research
economists undertake, as well as for the establishment of an
ethical code that would ask economists to understand and
communicate the limitations and potential misuses of their
models. (Colander, p. 1) (emphasis added)
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15. CONCLUSIONS
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In testimony before a US Senate subcommittee in March of this year Dr.
Robert McCullough suggested that regulators of energy commodities
markets would do well to take a page from An Inquiry into the Nature and
Causes of the Wealth of Nations in which 18th century economist Adam
Smith writes of "the invisible hand" as a beneficial consequence of free
markets. According to Dr. McCullough “It's been often quoted; it's been
seldom read. The passage was not simply praise of the market. It was a
warning against market participants who say that they are performing
their trades for the public good. The point is, without understanding the
market, without the data to review the market, we don't know that they're
telling the truth or not.”
But collecting the data on positions and inventories won't be enough if it's
not in the hands of the appropriate regulator, McCullough continued.
McCullough has, and not even between the lines, summed up why neoliberal economics is bad for markets, many of the actors who participate in
them, and the prices that are negotiated in markets. Neo-liberal
economics is fundamentally the pursuit of two goals. The first is to
convince everyone possible to reach that Dr. McCullough is incorrect. The
second is that capitalism (understood as the preeminence of markets) is
the absolute best economic system for the world but is under attack and
must be defended. Neither of these goals serve the ends of better markets.
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16. CONCLUSIONS
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Central planning and markets are not therefore necessarily at
odds. Often they can work together. And every such possibility
can in one fashion or another be understood in terms of
spontaneous order, so long as we do not, as Hayek did a prior
exclude certain actors (e.g., central government) from this
creation process and recognize that spontaneous order is difficult
to obtain, requires a great deal of work, and is always fragile and
subject to failure.
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Each market’s construction trajectory and rules should to be
considered separately as a unique pragmatic process. Markets can
happen and play out their life in many ways. The neo-liberal
“one-dimensional” market harms both the operation of the
markets and the welfare of those who depend on them.
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Markets can be constructed and operate locally through private
actors and agreements alone. But markets can also be
constructed based on central government facilitation and
planning. And there are many other potential trajectories for
market construction and operation.
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